Dominican Republic Central Bank Statement

Author: | Published: 5 Sep 2017

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The Dominican economy grew 6.6% in 2016, a rate above
its potential level, making it the economy that experienced the
highest growth in Latin America for the third consecutive year.
The aggregate demand was driven by the 11.1% growth in
investment, an expansion of 6.7% in exports and 4.5% in final
consumption. The annual inflation rate was 1.7%, below the
target of 4% ± 1%, and influenced by the positive supply
shock, mainly due to the relative stability of oil prices at a
level below the average of the last five years.

Given the positive supply shock that eased a substantial
growth with low inflationary pressures, the central bank kept
its policy rate unchanged at 5% until October 2016 when it was
increased to 5.5%, preventing an increase in inflationary
pressures in the short-term associated with expected increases
in oil prices, the normalisation of US monetary policy, our
main trading partner, as well as uncertainty in the markets due
to changes in US policies.

In this context of improved terms of trade, the balance of
payments results showed a reduction in the current account
deficit for the fifth consecutive year, from 1.9% of GDP in
2015 to 1.4% of GDP at the end of 2016. This result is mainly
due to the 9.3% decrease in the value of oil and oil products
imports, the increase in exports of goods by 4.4%, the growth
of tourism revenues by 9.9%, and the increase of 6.1% in family
remittances. Investment flows in 2016 experienced an expansion
of 9.2%, mainly for activities related to tourism, real estate,
and mining. As of December 2016, gross international reserves
reached $6,047.4 million, equivalent to 3.9 months of imports,
while net international reserves amounted to $6,046.7 million,
for an increase of $781.3 million and $851.6 million,
respectively, during the period. It is important to note that
this is the highest level historically achieved.

According to preliminary figures, in 2016 government
operations showed a non-financial public sector (NFPS) deficit
of 2.8% of GDP, as part of the fiscal consolidation process
initiated since 2012.

In 2016, the Dominican financial sector experienced a
sustained expansion rate of its gross assets and liabilities,
with annual increases of 11.8% and 11.7%, respectively,
verifying in turn appropriate levels in the profitability and
quality indicators of the loan portfolio.

The macroeconomic outlook for the end of 2017 shows an
expected GDP growth of around 5.5%, driven by private
consumption and investment. The inflation rate is expected to
be at the centre of the target range as the positive supply
shock dissipates, with a low probability of significant
inflationary pressures in the monetary policy horizon. In
addition, the current account deficit of the balance of
payments is expected to be around 2% of GDP, while achieving a
significant increase in international reserves.